6 implications to consider
As many of you now know, The Bank of Canada is hiking its key interest rate for the first time in seven years. The bank raised its overnight lending rate to 0.75 per cent from 0.5 per cent Wednesday. Six implications follow from this news.
1. Everyone will have something to complain about
Everyone will have something to complain about as interest rates rise, and there are no real winners. If you borrow, you’ll pay more. If you’re a saver or a conservative investor, life has now improved from negligible to not as bad as it was. Sorry not to be more optimistic, but facts are facts.
We leave our overweight in equities and underweight in fixed income recommendation in place. We continue to believe that assets and sectors sensitive to the economic cycle should outperform in this late stage of the cycle. Seasonal headwinds during Q3 could offer attractive entry points for new money.
A gradual rise in global bond yields (on low but positive inflation) creates an ideal backdrop for the continuation of the global equity bull market that started in 2009. We continue to hold our overweight view and would look for pullbacks/elevated volatility to deploy new money. We were rightfully bullish on the Q1 earnings season and believe earnings momentum tailwinds will persist in the upcoming Q2 season, helped by still favourable YOY comparisons.